Drilling Down

Pa. Attorney General Sues Chesapeake Over Royalties

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BRADFORD, Pa. – Pennsylvania Attorney General Kathleen Kane claims Chesapeake Energy used “a bait and switch scheme” to wrongfully deduct from landowners’ royalty checks payments the company made to related affiliates.

Tracy W. Wertz, chief deputy attorney general in the AG’s Antitust Section filed the lawsuit Wednesday in Bradford County Common Pleas Court. It seeks unspecified damages for landowners plus civil penalties and a permanent injunction to stop Chesapeake from “engaging the acts and practices alleged in this complaint and any other acts and practices which violate the Unfair Trade Practices and Consumer Protection Law.”

Chesapeake issued a statement denying the “baseless allegations” and vowing to “vigorously contest them in the appropriate forum.”

The lawsuit mirrors other litigation filed against Chesapeake in states where it signed leases and drilled horizontal wells in shale plays.

In Columbiana County, Ohio, Common Pleas Court, for example, two landowners and a resident of Summit County sued Chesapeake Oct. 26, claiming the Oklahoma City company breached its lease agreements by selling oil and gas at below-market value while assessing improper deductions from their royalty checks.

That lawsuit, filed by Zehentbauer Family Land LP, Hanover Farms and Evelyn Frances Young, seeks more than $30 million in unpaid royalties.

On Nov. 4, another lawsuit was filed against Chesapeake, this time in U.S. District Court in Youngstown, accusing the company of corporate fraud and violating the Ohio Corrupt Practices Act.

Both lawsuits are in the early stages of litigation.

A spokesman for the Pennsylvania attorney general told reporters the lawsuit filed Wednesday could affect more than 4,000 Pennsylvania landowners with damages “in the tens of millions of dollars.”

The litigation was filed in Bradford County because north central Pennsylvania is where Chesapeake has concentrated its drilling operations.

A separate class action suit over royalties owed landowners there resulted in a settlement agreement that the AG’s office also seeks to nullify. To that end, state attorneys concurrently filed an amicus brief in federal court.

Published by The Business Journal, Youngstown, Ohio.